Apple goes on offensive in iPod antitrust trial

Apple went on the offensive Wednesday with its own witnesses in the class-action antitrust trial in federal court in Oakland, California.

The jury will start to deliberate as early as next week whether Apple violated antitrust laws by blocking songs sold by rival digital music providers from working on iPods.

On Wednesday, Apple brought its first witness: John Kelly, a former University of California at Santa Barbara computer science professor, who has his own technology consulting firm.

Kelly was very well-versed in the innards of the Apple iTunes software iterations, and spoke directly to the jury about how Apple had to innovate its software code to keep up with music pirates and sophisticated hackers.

Apple's lawyers are arguing that the updates to iTunes software eight years ago were designed to improve intellectual property protection from rampant piracy.

But the plaintiffs allege Apple discouraged competition, and they are seeking damages that could reach $1 billion.

At the core of the plaintiffs' case is the contention that Apple violated antitrust laws by changing its technology to block compatibility with RealNetworks competitive digital music software. However, no one from RealNetworks, including founder Rob Glaser, was called by the plaintiffs as witnesses.

By changing the iTunes software, the plaintiffs claim Apple effectively blocked consumers from playing music on their iPods that they may have downloaded from competitive music software providers, like RealNetworks's Harmony.

Kelly said Harmony's software went around Apple's encryption software and stripped out its digital rights management (DRM) system for downloaded music, replacing it with software that resembled Apple's software.

Then in September 2006, Apple came out with a revised version of its iTunes that disabled Harmony.

The plaintiffs claim Apple's changes to iTunes were designed to lock iPod customers into the iTunes, and thus, created leverage to charge consumers more for future iPod models.

Sources within Apple's legal team told CNBC it will call several more witnesses, and expect to rest by Tuesday. Federal Judge Yvonne Gonzalez Rogers is expected to rule on a still-to-be-filed motion that would make an iPod-using ice dancer the sole named plaintiff for the class action.

Read More Plaintiffs find possible witness in Apple antitrust case Barbara Bennett is a former technology consultant who appeared this week in the court as a potential plaintiff in the class-action case. Bennett was flown by the plaintiffs side from Boston, after other named plaintiffs were dismissed.

From all indications, Bennett will be allowed to represent the plaintiffs case, but even if she is accepted by all sides, sources tell CNBC that she's already flown back to Boston without being called as a witness.

Apple is likely to continue with its second witness, University of Chicago economics professor Kevin Murphy on Thursday.

A massive storm is expected to arrive in Northern California on Thursday, and schools have already closed in Oakland, San Francisco and surrounding areas, but Gonzalez Rogers said court will be in session.

The Attorney Plaintiffs (order of words intentional) didn't dare put Barbara Bennett on the stand to voice her complaints about her iPod experience because she would have spilled the beans about her ability to get the rare Hungarian tango music she loved on her iPod that simply wasn't available on iTunes. Nor, under cross examination it would have come out, was it available on RealNetwork's DRM music downloads either and found out she was putting music on like 80% of iPod users put music on their iPods by ripping their own purchased CDs. That would NOT have forwarded their myth of iPods not allowing any music except expensive iTunes purchased music.

Secondly, the Attorney Plaintiffs are trying to put forward the myth that Apple was using this lock-in to raise iPod prices. However, my distinct recollection from this period is that within each model category of iPod, and indeed, across the entire product line, over the period in question, Apple REDUCED prices, while adding functionality and capacity to each of their iPod models. A chronological chart showing the progression of capabilities and capacities with pricing would demonstrate this graphically for the jury and refute the entire premise of the Attorney Plaintiff's affirmative case.

A good example would be the iPod Shuffle. . . the 1GB introduced in 2005 for $149 (512KB model for $99) was only $79 for the 1GB version of the 2nd edition a year later in late 2006. Then in 2008, Apple increased the capacity to 2GB for the same $79. By the time the 3rd model came out in early spring of 2009, Apple jumped the capacity to 4GB, added controls, all for the same $79, meanwhile the second generation iPod shuffle was still in the line up at a $49 and $29 price point. (all prices from historical data at everyipod.com) WHERE are these mythical price increases?

The iPod trial continues with the Attorney Plaintiffs allowing the lead "plaintiff," Barbara Bennett, to fly away home to Boston without testifying as to exactly why and how she was economically injured by owning an iPod. Meanwhile, Apple's defense attorneys go on offense. — PING!

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Wonder why not.

Easy. If they had called anyone from RealNetworks, then under cross examination, Apple could have brought out that RealNetworks had hacked into the iPod to insert their DRM into the iPod's operating system. The Attorney Plaintiffs could not have that, because is destroys their case.

All Apple has to show is that Apple's changes to the iPod OS was to CLOSE VULNERABILITIES that could be used by hackers! If RealNetwork used a vulnerability that could have been used by them to insert their own version of DRM, it could a priori, be used by another hacker to insert code to steal music.

Apple can also show that the new OS changed features as well. . . adding more functionality to iTunes and iPod. There were major changes to the UI and abilities in iTunes 7.0 and iTunes 7.4 that are the upgrades that are being challenged in this case. For example iTunes 7.0 added September 12, 2006:

Video playback/purchasing improvements, iPod games, Major GUI changes, gapless playback and album, sync purchased content from iPod to computer, Cover Flow added.

And here's a biggie in 7.4, released September 7, 2007:

Support for iPod Touch, Classic (6G), Nano (3G), and adds interface art for new iPod Shuffle colors. GUI improvements.

You read that right. . . iPod touch! Apple added support in 7.4, the iPod touch screen. And these bozos claim it was ONLY about changing the OS to block RealNetwork! The most important and biggest change in the iPod is just not there. . .

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